The first instance decision in this case was reported in Weekly
Update 17/17. The SFO sought disclosure of documents generated
during investigations undertaken by the defendant's solicitors
and accountants in relation to a SFO investigation. It was held
that neither litigation nor legal advice privilege could be claimed
in respect of most of those documents and the defendant appealed.
The Court of Appeal has now upheld that appeal. It held as
follows:

(1) Litigation Privilege: The Court of Appeal held that it was
largely a factual issue whether criminal or civil proceedings are
reasonably in contemplation. Here, the judge had erred in finding
that proceedings were not reasonably in prospect. Whilst not every
expression of concern by the SFO could be regarded as adversarial
litigation, here the SFO had made clear the prospect of its
criminal prosecution, and legal advisers were engaged to deal with
that situation. (The judge had commented on the position in the
insurance-related case of Westminster v Dornoch (see
Weekly Update 34/09), in the context of whether litigation can be
in prospect even if investigations are not yet complete, but the
Court of Appeal did not review that case in any detail).

At first instance, the judge had also held that litigation
privilege covers litigation tactics (including settlement) but does
not cover advice on how best to avoid contemplated litigation. That
was held by the Court of Appeal to be wrong. It was said that
"In both the civil and the criminal context, legal advice
given so as to head off, avoid or even settle reasonably
contemplated proceedings is as much protected by litigation
privilege as advice given for the purpose of resisting or defending
such contemplated proceedings".

There was also a consideration of the situation where there are
potentially 2 separate purposes in creating a document: In
Waugh v British Railways Board [1980], it was held that a
report was produced for 2 separate purposes (rail safety and
litigation) and that litigation privilege could attach only if
dealing with anticipated litigation is the dominant purpose. That
decision was followed in the later cases of Re Highgrade
[1984] and Bilta v RBS (see Weekly Update 5/18), where it
was held on the facts that such dominant purpose existed (and in
fact it was said in this case to be hard to see what any
alternative purpose might have been in those two cases). The
dominant purpose test was satisfied in this case as well: although
the defendant had wanted to deal with governance issues too, it was
clear that the investigation was primarily intended to deal with
future litigation.

(2) Legal Advice Privilege: Given the finding that the relevant
documents were protected by litigation privilege, it was not
necessary for the Court of Appeal to determine whether legal advice
privilege applied as well. The Court of Appeal also recognised that
it would be "highly undesirable for us to enter into an
unseemly disagreement" with the judgment of the Court of
Appeal in the Three Rivers (No.5) [2002] case, and that
"If the ambit of Three Rivers (No. 5) is to be
authoritatively decided differently from the weight of existing
opinion, that decision will, in our judgment, have to be made by
the Supreme Court rather than this court".

The decision in Three Rivers (No.5) has been the focus
of several recent High Court judgments, some of which have
criticised its finding that not all officers and employees (and
ex-employees) within a company should be treated as the
"client" for the purposes of legal advice privilege, and
that only those employees within the organisation who are dealing
with the matter on which the lawyer is giving advice will be the
"client".

At first instance in this case, the judge affirmed the Three
Rivers (No.5) decision but in this case, the Court of Appeal
said that "If ... it had been open to us to depart from
Three Rivers (No. 5), we would have been in favour of
doing so". That was because it recognised that, whilst the
Three Rivers' approach presents no problems for
individuals and many small businesses, it does not cater for legal
advice sought by large national and multinational corporations:
"If a multi-national corporation cannot ask its lawyers to
obtain the information it needs to advise that corporation from the
corporation's employees with relevant first-hand knowledge
under the protection of legal advice privilege, that corporation
will be in a less advantageous position than a smaller entity
seeking such advice. In our view, at least, whatever the rule is,
it should be equally applicable to all clients, whatever their size
or reach. Moreover, it is not always an answer to say that the
relevant subsidiary can seek the necessary legal advice and,
therefore, ask its own lawyers to secure the necessary information
with the protection of legal advice privilege. In a case such as
the present, there may be issues between group companies that make
it desirable for the parent company to be able to procure the
information necessary to obtain its own legal advice".

It was further recognised that the current English law approach
is out of step with the international common law on this issue.
Nevertheless, for now, it remains correct.

The Court of Appeal declined to resolve a further argument that
all working papers produced by a lawyer should be privileged,
provided that they are confidential documents created for the
purpose of giving legal advice (and there should be no additional
requirement that the documents would betray the tenor of legal
advice given by the lawyer). That issue too, it decided, would be
better decided by the Supreme Court. It remains to be seen if this
case will be appealed further to the Supreme Court.

Hodgson v National House Building Council: Judge
considers whether insured is required to reinstate property

The claimant's bungalow was constructed by a builder and the
property had the benefit of an NHBC Buildmark policy which,
broadly, provided that NHBC would pay, in certain circumstances,
the cost of remedial works. By the time of the claim against the
NHBC in this case, the claimant had sold the property without
carrying out any remedial works.

One of the defences advanced by the NHBC in defence of the claim
was that the claimant had suffered no recoverable loss because he
will never now incur the costs of remedial works. It was argued
that the NHBC policy was a contract of indemnity, covering loss
suffered by the claimant, but diminution in the property's
value was said to be expressly excluded.

Reference was made to the case of Great Lakes Reinsurance v
Western Trading (see Weekly Update 36/16), in which the
insured sought the cost of reinstatement from property insurers in
circumstances where the insured had no intention of reinstating and
the value of the property had increased as a result of the fire.
Clarke LJ had said, obiter, that "I doubt whether a
claimant who has no intention of using the insurance money to
reinstate, and whose property has increased in value on account of
the fire, is entitled to claim the cost of reinstatement as the
measure of indemnity unless the policy so provides".

That view contrasted, though, with the view in Colinvaux's
Law of Insurance that "subject to the terms of the policy, the
insurer will be liable on the cost of reinstatement basis even
where actual reinstatement is no longer possible, as for instance
where the damaged premises have been sold... in which case the cost
is assessed on a notional reinstatement basis".

The judge in this case held that "There is no decided
authority that where the claim is in respects of defects in or
damage to property, such loss cannot include the cost of remedial
works if the remedial works will not be carried out. The views
expressed in the Great Lakes case are obiter and at odds
with the views expressed in a leading textbook". In any event,
the policy in this case did not provide for the NHBC to indemnify
against loss – it instead required the NHBC to pay the
"Cost", as defined in the policy (and so could be
distinguished from Great Lakes on that basis). She further
found that there was no general exclusion of liability for
diminution in value in the policy.

Vik v Deutsche Bank: Court of Appeal considers
committal order issues where defendant is out of the
jurisdiction

The earlier decisions in this case were reported in Weekly
Updates 46/16 and 10/17. The defendant, a judgment debtor who is
domiciled in Monaco, breached an order pursuant to CPR r71 to
provide information. The claimant applied for a committal order and
Teare J held that a party who alleges breach of an order made under
CPR r.71 does not have to proceed under CPR r71.8, but can instead
elect to proceed with a committal application under CPR r81 (which
has extra-territorial effect). When Teare J found that the
applicant could not bring itself within one of the jurisdictional
gateways of PD 6B, it sought to argue that permission to serve out
was not required and Teare J accepted that argument. The defendant
then appealed to the Court of Appeal which has now held as
follows:

(1) Teare J was correct to find that the CPR r71 procedure does
not supplant that available under CPR r81.

(2) Teare J was also correct to find that permission to serve
out was not required because the English court already had
substantive jurisdiction over the defendant because he had been
personally served with the CPR r71 order and the order for
committal was incidental to that CPR r71 order.

Those conclusions were sufficient to dispose of the appeal.
Nevertheless, the Court of Appeal also considered the judge's
view that the claimant also did not need permission to serve out
because of Art. 24(5) of the Recast Regulation, which provides
that, regardless of the domicile of the parties, "in
proceedings concerned with the enforcement of judgments, the courts
of the Member State in which the judgment has been or is to be
enforced" shall have exclusive jurisdiction. The Court of
Appeal said that its provisional view was that the judge had been
correct on this point too.

The Court of Appeal also felt that the Rules Committee should
consider introducing a new gateway allowing service on an officer
of a company "where the fact he is out of the jurisdiction is
no bar to the making of a committal application".

Dreymoor Fertilisers v Eurochem: Judge rules documents
and evidence given by US citizen in the US can be used in London
arbitrations

The defendant in this case had applied to a US court under
section 1782 of the United States Code for an order requiring a US
citizen resident in the US to disclose documents and give evidence
by way of deposition. That order was granted ("the 1782
Order") and was stated to be for the purpose of providing
evidence in proceedings taking place in the British Virgin Islands
and Cyprus. However, under US law, the defendant is free to use the
documents and evidence provided pursuant to the 1782 Order for any
purpose. The defendant intended to use them in London arbitrations.
The claimant obtained an injunction restraining the defendant from
enforcing the 1782 Order, but Males J has now declined to continue
that injunction.

Prior caselaw has established that, in some circumstances, use
by a party of the procedure under section 1782 can constitute (as a
matter of English law) unconscionable conduct, interfering with the
fair disposal of English court or arbitration proceedings (which
the English court will restrain by injunction). However, the judge
held that there was no such unconscionable conduct in this case. A
key factor was that the 1782 Order had been sought in respect of
third countries (the BVI and Cyprus) and whilst the English court
has a legitimate interest in protecting the fairness of English
litigation or arbitration proceedings "It has, however, no
legitimate interest in policing a party's attempt to obtain
documents or evidence for use in foreign proceedings, let alone in
reviewing the decision of the United States court as to whether its
procedures should be utilised for that purpose". Furthermore,
in this case, the US court had reached a reasoned decision that the
documents and evidence were needed for use in the proceedings in
the third countries and that the defendant had or would suffer
prejudice if it did not have that material. It also could not be
said in this case that the London arbitrations were the "lead
proceedings" in which the liability disputes between the
parties would be resolved.

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